I haven't played this game, and I don't want any spoilers; I'm mainly asking about gameplay. What I mean is: most games like this (Final Fantasy, Wild Arms, etc.) have sequels, but they're entirely different stories with different characters. I've always assumed that this is because in an RPG, you gain experience and abilities, and it would be strange and jarring to start the next game in a different situation than you were in when the previous one ended - that is assuming the story picks up where it left off. You wouldn't want to gain a bunch of experience levels and start over at level 1, would you?

So my question is: it seems like this series has a very continuous story, but how do they deal with this problem from one game to the next?

In the case of Trails in the Sky First Chapter and Second Chapter, the two games, as I understand it, are basically one story split in two. So we'll pick right up with Estelle again in the next game. I do think there is a bit of a bag of spilling situation--it won't be a clean 100% transfer. Depending on what Estelle's level was at the end of the first game, she'll be around level 25 or 30 in the next game (correct me if I'm wrong, here). NPC's you did prior quests for will have special dialog, little things like that. I'm not sure if you get to keep weapons, items, etc, although you might get bonus mira/sepith.

EDIT: Whoops, another thread goes into more detail about what carries over.